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One of the major bases behind the numbers stated above is "Demographic Dividend" and the steps to be taken to utilize it to its full potential.
Demographic dividend, by definition, is the rise in the rate of economic growth due to the rise in proportion of working age people in a population. Rise in working population leads to rise in output per capita. The enormity of the Demographic Dividend is dependent on the ability of the economy to absorb and productively employ the enhanced work force. Increase in ratio of workers to dependents is due to low fertility aided by increased female labour market participation.
However as the working age cohort grows older, population aging sets in. In the graph below, ratio of working age to dependent population (those 15 to 64 years old, divided by those above or below this age range - inverse of dependency ratio)
Source: Data and Projections from the United Nations
Given the availability of work and the resulting employment, the division broadens to include those outside the labour force, those available for work but unemployed and those in the actual workforce. Since those outside the workforce would be consuming part of what is produced by currently employed workers, the ratio of those outside the workforce to those in it (the dependency ratio) would be among the factors influencing the surplus available for investment after current consumption.
India's population exceeds a billion. The population growth trajectory of India is about 9%. Many of us are under the impression that the manpower in India is great. Quantitatively, maybe this is correct. The value of any resource depends on its usefulness and special characteristics. A third of India's population was below 15 years of age in 2000. In 2020, the average Indian will be only 29 years old, compared with 37 in China and the United States, 45 in Western Europe, and 48 in Japan.
India's Demographics to 2050
Labour Force (mn)
Source: US Census Bureau International Database
Positive net effect from the Fertility/Mortality rates:
India is indeed in the midst of a process where it faces the window of opportunity created by the demographic dividend. During the first two decades of post-Independence development, while infant mortality rates fell significantly, the fertility rate remained more or less stagnant. This would have increased the population of young people significantly, merely because of greater child survival. In the three decades since then, though the fertility rate has been declining, the infant mortality rate has fallen quite sharply, with possibly the same effect.
Falling child dependency ratio:
The effect of trends stated in the previous point on the dependency ratio defined merely in terms of age groups is quite visible. The total dependency ratio began to fall from 79 in 1970 as the child dependency ratio fell with the baby boom generation moving into working-age groups. Also, the old-age dependency rose only marginally because of reduced death rates in older age groups.
Thus India had begun to reap the demographic dividend around 1980. But the process is likely to extend well into this century with the age-based dependency ratio projected to fall to 48 in 2025 because of continued fall in the child dependency ratio and then rise to 50 by 2050. This would be a result of an increase in the old-age dependency ratio as the bulge moves forward and the death rate in the older income group declines. The window of opportunity offered by a population bulge has clearly opened for India.
UN Population Projections for India, Medium Variant (mn)
Dual problem of unemployment and talent scarcity :
India is faced with a "talent paradox". While jobs are growing at a faster rate than the population, unemployment is also growing. The dual problem of unemployment and talent scarcity presents governments and employers with a human resource paradox: tackling a talent shortage in the midst of plenty. India has one of the youngest populations in the world. The working-age population grew from around 593 million in 2001 to 671 million in 2006, increasing by an average of 15 million a year. Yet, while demographics indicate a healthy supply of working-age people in India, there exists a significant skill deficit. This talent shortage stems from employability practices that are often focused on simply conferring qualifications on individuals while the ability to perform a job or contribute in the workplace is seldom taught. The quality of education has also been a challenge with understaffed schools and high student-teacher ratios, especially in rural areas.
A consultancy firm and the Project Management Institute have found out in a special survey that 53% of the companies they had surveyed face unavoidable delays due to non-availability of experienced labor. During the decade 1999 - 2009, such project delays have caused a loss of Rs. 54000 crores. In Indian context failures to meet deadlines have occurred in 82% of the projects; and 41% of the projects have to suffer cost overruns
Positive effects of the current demographics
Young population with higher savings rate :
Unlike US, who funds its growth from borrowings, India's growth is a result of savings led investments. Savings rate in India is far higher compared to international standards. According to Lovelesh Manocha, vice president, Ideas 1st Research, saving rate in India has moved up from 24% to 36% in the span of 5-6 years which acts as an aid to fund the investments through domestic sources. India's investments stand at nearly 38% GDP, which is in turn driving country's growth.
Independent outlook leading to better decision making:
Indian citizens are more independent in their decision making given the moderately high levels of freedom of speech, religion, and movement. According to a survey done by Gallup World Poll, 85% of respondents believe that tolerance towards ethnic minorities is high, only 60% believe that their country is a good place for immigrants. In terms of freedom of choice in their daily lives, 75% of Indian respondents claim to be satisfied.
Opportunity to capitalize the healthy social capital:
Indian citizens report high levels of membership in community organisations, allowing for a broad network of social capital. The Gallup World Poll also reported that between 59% and 68% of the population responded that they belong to a variety of community organisations, while only 23% of Indian citizens believe they can trust others, and 64% believe they can rely on family and friends.
Factors holding back
Low FDI compared to large workforce:
A combination of a large labour force and very low foreign direct investment as a percentage of GDP could provide a possible explanation for the extremely low availability of productive physical capital per worker. Even though the source of India's export revenues are manufactured goods rather than raw materials and natural resources, generally its terms of trade remain weak.
Limited support for entrepreneurial activities:
With only 11 formal business start up procedures and approximately 20,000 new businesses registered in 2007, India has a favourable environment for entrepreneurship. However, India suffers from a weak communication infrastructure. Less than one secure internet server per one million people and approximately two personal computers per 100 people, shows India's recent high-tech prowess is not widely spread amongst the workforce.
Underdeveloped educational infrastructure:
Primary and secondary education enrolment rates are quite low in India. Tertiary enrolment rates are similar at a mere 12%. India also performs poorly on the number of students per teacher - there are approximately 40 students per teacher in primary education. The girls to boys enrolment ratio indicates a strong bias towards male enrolment in schooling, with just 91 girls for every 100 boys. Labour productivity could also be significantly improved if average education per worker rose beyond three and five years for tertiary and secondary education, respectively.
Underinvestment in medical facilities:
Poor healthcare facilities and the general low level of health are matters which cause concern. Severe underinvestment in medical facilities is shown through the lack of adequate doctors and hospital beds per capita. While only 28% of the population has access to improved sanitation facilities, approximately 20% of the population are undernourished. Infant mortality rates are very high.
Disturbance due to political unrest:
India faces significant problems related to refugees and internally displaced individuals. Legacies of group grievances and conflict resulting from insecurity and human flight are additional challenges for the nation. Although homicide rates are about average at four homicides per 100,000 people, India suffered from high casualties due to civil and ethnic unrest in 2008.
Rampant corruption coupled with bureaucracy:
India's performance in terms of bureaucratic quality and effective implementation of policies is average. In terms of regulatory quality and enforcement of the rule of law, India ranks 68th and 46th out of 104 countries, respectively. In the Gallop World Poll, around 87% of Indian citizens believe that government and businesses in India are corrupt. Although political participation is considered to be fair and free, only 49% of individuals believe that elections are honest.
A reasonable R&D expenditure and above average royalty receipts signify India's awareness of the importance of innovation. A forward-looking strategy is to develop talent in those Indian states that will supply a significant portion of the national workforce in the future.
According to research conducted byÂ Accenture IndiaÂ to analyse the talent- supply landscape of India, only four states-Bihar, Uttar Pradesh, Madhya Pradesh and Rajasthan, states with the least developed infrastructure and economies-will supply the largest proportion of the additional workforce by 2026, at least 60% of the projected 175 million. This has tremendous relevance, not only for governments and policymakers, but also for businesses that can source from these lower-cost talent pools by investing in advanced educational and training infrastructures in these states.
Without better governance, delivery systems and effective implementation, India will find it difficult to educate its citizens, build its infrastructure, increase agricultural productivity and ensure that the fruits of economic growth are well established.
Raise educational achievement:
Among more micro factors, raising India's educational achievement is a major requirement to help achieve the nation's potential. According to our basic indicators, a vast number of India's young people receive no (or only the most basic) education. A major effort to boost basic education is needed. A number of initiatives, such as a continued expansion of Pratham and the introduction of Teach First, for example, should be pursued.
Increase quality and quantity of universities:
At the other end of the spectrum, India should also have a more defined plan to raise the number and the quality of top universities.
Although India has not suffered particularly from dramatic inflation, it is currently experiencing a rise in inflation similar to that seen in a number of emerging economies. We think a formal adoption of Inflation Targeting would be a very sensible move to help India persuade its huge population of the (permanent) benefits of price stability.
Introduce a credible fiscal policy:
We also believe that India should introduce a more credible medium-term plan for fiscal policy. Targeting low and stable inflation is not easy if fiscal policy is poorly maintained. We think it would be helpful to develop some 'rules' for spending over cycles.
Liberalise financial markets:
To improve further the macro variables within the GES framework, we believe further liberalisation of Indian financial markets is necessary.
Increase trade with neighbours:
In terms of international trade, India continues to be much less 'open' than many of its other large emerging nation colleagues, especially China. Given the significant number of nations with large populations on its borders, we would recommend that India target a major increase in trade with China, Pakistan and Bangladesh.
Increase agricultural productivity:
Agriculture, especially in these times of rising prices, should be a great opportunity for India. Better specific and defined plans for increasing productivity in agriculture are essential, and could allow India to benefit from the BRIC-related global thirst for better quality food.
Focus on infrastructure in India is legendary, and tales of woe abound. Improvements are taking place, as any foreign business visitor will be aware, but the need for more is paramount. Without such improvement, development will be limited.
Improve Environmental Quality:
The final area where greater reforms are needed is the environment. Achieving greater energy efficiencies and boosting the cleanliness of energy and water usage would increase the likelihood of a sustainable stronger growth path for India.
Perhaps not all these 'action areas' can be addressed at the same time, but we believe that, in coming years, progress will have to be made in all of them if India is to achieve its very exciting growth potential.